Bankruptcy 1993: Student Loans Laws
Bankruptcy protection is offered to all American citizens. This protection gives customers a "clean slate" from which they can begin rebuilding credit. However, in many cases, student loans are one of the only loans that cannot be discharged in a bankruptcy. When attempting to secure student loans after a bankruptcy, the rules are a bit different. It's important to remember that there are two types of student loans, private and government, and the regulations vary drastically.
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Bankruptcy to Eliminate Student Loans
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In general, most student-loan borrowers will not be able to discharge them in a bankruptcy. However, according to Student Loan Borrower Assistance, a nonprofit legal counseling service in conjunction with the National Consumer Law Association, there are certain instances in which a borrower can present a "hardship" defense to eliminate student loans. It's important to speak with your bankruptcy lawyer before attempting to mount this defense.
Bankruptcy in 1993
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As of 2009, when this article was written, sixteen years have passed since U.S. bankruptcy law was written. According to FinAid.org, a nonprofit organization dedicated to educating the public on student loans, the federal government cannot deny student loans to borrowers who've had a bankruptcy. This applies to the government's student aid -- Stafford and Perkins loans.
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Exceptions
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While the government has a nondiscrimination policy regarding prior bankruptcies, any current student loans that are in bankruptcy or default are subject to scrutiny. In these cases, the government often requires debtors to "reaffirm" these debts. Reaffirmation means that a borrower once again takes responsibility for the loans and begins repayment.
Private Loans
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Private student loan lenders -- such as CitiGroup -- handle credit review much differently. Because banks that offer student loans are for-profit institutions, they are more interested in gaining a return on their lending decisions. In these cases, borrowers' applications for bankruptcies will be scrutinized much more -- and in many cases denied outright. Typical lenders will not grant credit to anyone with a bankruptcy in the last seven years.
FAFSA
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The Free Application for Federal Student Aid (FAFSA) is a document all potential student--loan borrowers must complete. This document will ask questions regarding credit history, and any attempt to conceal prior defaults or bankruptcy will result in loan denials. Speak with a financial aid officer at your potential school before attempting to secure loans to make sure you're eligible.
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